Rite Aid CEO out, bonds come in; Blockbuster debt stays weak; NewPage notes seen 'plummeting'

By Stephanie N. Rotondo

Portland, Ore., Jan. 22 - The distressed debt market continued to be under pressure as the week came to an end.

"Everything is kind of lower," a trader said, noting that many things were down at least half a point to a full point on the day.

"The market is feeling soft right now," said another source.

Rite Aid Corp. experienced some softness as the company announced it would replace its chief executive officer. As the bonds fell a few points, the market seemed to be concerned about what that meant for the future of the company.

Blockbuster Inc. and NewPage Corp. also continued to be weak. Blockbuster paper was down about 3 to 4 points from Thursday closing levels, while NewPage saw its debt fall about 6 points, only to recover a few more to end down only 1 to 2 points.

Rite Aid bonds come in

Rite Aid's bonds weakened some following news that the company had replaced its chief executive.

A trader said there was "a little action" in the 8 5/8% notes due 2015. He called the issue down "a good 1 [to] 1¼ points" at 85 bid, 86 offered.

Another trader said the name was "weaker," pegging the 9 3/8% notes due 2015 around 851/2, down from 871/2. He also saw the 8 5/8% notes around "85-ish" compared with 86 bid, 87 offered on Thursday. However, he noted that the paper was "not all that active."

Yet another source deemed the 8 5/8% notes down more than 2 points at 85½ bid.

The Camp Hill, Pa.-based pharmacy chain announced Friday that its CEO, Mary Sammons, would be replaced by John T. Standley, currently the president and chief operating officer of the company. The switch will take place after the company's annual stockholder meeting on June 24.

Sammons will remain on as chairman.

"When I asked John to return to Rite Aid, I knew he would move swiftly to improve our company's operations," Sammons said in a prepared statement. "As president and COO, he's helped us manage through this recession and set in motion initiatives to grow our company for the future."

"We are in a much stronger financial position today in large part due to his leadership. His many accomplishments in such a short time as president and COO and his previous successful track record at our company demonstrate his ability to guide Rite Aid as its next CEO," Sammons said.

"It's a privilege to work with Mary and the 99,000 talented and dedicated Rite Aid associates to build on the considerable progress we've made in the past year," Standley said. "While we still have a lot of hard work ahead, I'm confident in the strategies we've identified to improve our performance and look forward to leading the company as we continue to implement initiatives to grow profitable sales, further improve our cost structure and reduce debt."

Though Rite Aid said that the management change was simply a matter of its "executive succession plan," news reports have cited analysts who claim otherwise, that in fact it was Sammons' inability to turnaround the company that resulted in the ouster.

Blockbuster remains weak

Blockbuster paper was "active again," a trader said, as the bonds finished up the week still lower.

The trader saw the 9% notes due 2011 around 28, down from around 32 on Thursday. The bonds had fallen nearly 30 points during that session, as the company gave a disappointing forecast for its year-end and fourth-quarter results.

Another trader said the notes were "melting," placing the 9% notes in the high-20s and the 11¾% notes due 2014 around 73.

Late Wednesday, the Dallas-based movie rental chain said that it had revised its prior forecast for the 2009 fiscal year, due to less-than-expected holiday sales. The company now estimates that its full-year net loss will be in the range of $183 million to $193 million.

As a result of this disclosure, the bonds began to fall amid concerns about the company's future, as well as its ability to compete with new technology in the movie-renting space, such as Redbox and Netflix.

Though Standard & Poor's altered its outlook on the company to negative on Thursday, Moody's Investors Service responded by leaving its rating unchanged. Still, Moody's analysts did note that the wider-than-expected loss did bring up some concerns going forward.

NewPage notes 'plummeting'

NewPage's debt also continued to be active, traders reported.

"They are just plummeting," a trader said of the 10% notes due 2012. He saw them hit a low of 58 before creeping back to lose at 62. Still, that was down from 64 on Thursday and from 78 at the beginning of the week.

Another trader also saw the issue "rebounding" to levels around 63 from intraday lows of 59 bid, 60 offered.

As previously reported, the Miamisburg, Ohio-based papermaker put out an 8-K earlier in the week, which gave some preliminary fourth-quarter and full-year results. The projected results were deemed "disappointing" by market players and their declines over the last several sessions seemed to indicate that investors agree.

Broad market still soft

Also in the distressed debt realm, Clear Channel Communications Inc.'s 10¾% notes due 2016 were among the more active issues, trading lower at 73 bid, 74 offered, according to a trader. Another trader called the notes "down a couple points" around 73.

The second trader also saw the 11% notes due 2016 around 64, compared with levels around 68 previously.

A trader said there was "no real change" in General Motors Corp.'s 8 3/8% notes due 2033, which he saw closing at 26 bid, 27 offered. But another source said the bonds had fallen "a good point" to 26½ bid, 27 offered.

Also in the autosphere, Cooper-Standard Automotive Inc.'s 8 3/8% notes due 2014 were softer, according to a trader. He said the bonds had "recently gotten as high as 38," but fell off Friday to around 321/2.

"The first round-lot trade in over a week and it's down 6 points," he said.

First Data Corp.'s 9 7/8% notes due 2015 closed the day down "3 and change" at 88 bid, 89 offered.

Swift Transportation Co. Inc.'s 12½% notes due 2017 were also weaker at "89-ish."

Demand for Smurfit loan high

Smurfit-Stone Container Corp.'s $1.2 billion six-year term loan (B2) was oversubscribed ahead of Friday's commitment deadline, according to a market source.

The term loan is talked at Libor plus 500 basis points with a 2% Libor floor and is being offered at an original issue discount of 981/2.

In addition, the term loan includes 101 soft call protection for two years.

There is a $400 million accordion feature under the term loan, subject to, among other things, 25 bps MFN pricing protection.

The facility includes no maintenance covenants. However, there is a debt incurrence test of 2.0 times interest coverage.

JPMorgan, Deutsche Bank and Bank of America are the lead banks on the deal.

Smurfit-Stone also plans on obtaining a new $650 million four-year asset-based revolver, with proceeds from the entire $1.85 billion credit facility going towards exit financing.

Through the company's plan of reorganization, debt will be reduced by $2.9 billion. Pre-petition secured lenders will be repaid in full and there will be an equity distribution to about $3 billion face value of unsecured obligations.

Smurfit-Stone's pro forma capital structure as of March 31, 2010 is expected to include 2.5 times total debt and 2.3 times net debt. By comparison, the company's current structure as of Dec. 31, 2009 included 8.0 times total debt and 6.5 times net debt.

The credit facility effective date is expected to be Jan. 29, but the company is expecting to emerge from Chapter 11 and fund the bank deal in April.

Smurfit-Stone is a Chicago-based manufacturer of paperboard and paper-based packaging.

Big West seeks new loan

Big West Oil LLC is currently expected to allocate its $360 million five-year term loan during the week of Jan. 25, according to a market source.

The term loan is priced at Libor plus 950 bps with a 2.5% Libor floor, was sold at an original issue discount of 97, and includes 101 soft call protection for one year.

During syndication, the Libor floor was reduced from 3%, the discount tightened from initial talk of 96 and the call protection was added.

Proceeds from the term loan, along with a $75 million three-year ABL revolver, will be used for exit financing.

Bank of America is the lead bank on the deal.

Big West Oil, a wholly owned subsidiary of Flying J Inc., is a Salt Lake City-based complex high conversion refinery.

Hexion amendment passed

Hexion Specialty Chemicals Inc. got enough signatures from lenders to pass its senior secured credit facility amendment and extension proposal, according to an 8-K filed with the Securities and Exchange Commission.

In addition, the company revealed on Friday that approximately $900 million of its term loan debt was extended to May 5, 2015 in return for higher pricing.

The amendment also permits revolver commitments to be extended to May 5, 2013, and, as of Jan. 12, the company had roughly $200 million in orders toward the extended revolver.

Pricing on the extended revolver is Libor plus 450 bps and committing revolver lenders are being offered a 200 bps upfront fee as well as a 200 bps ticking fee.

The extended revolver will take effect upon the May 31, 2011 expiration of the existing revolver.

Another part of Hexion's amendment is that it allows for the issuance of $1 billion 8 7/8% senior secured notes, which the company recently priced at 99.296.

Proceeds from the notes will be used to repay $800 million of term loans and for general corporate purposes.

The notes were upsized from $700 million, and, as result, the term loan paydown increased from $500 million.

The amendment also revises some covenants contained in the credit agreement, resets the accordion feature to $200 million, permits the issuance of additional senior notes or loans as long as an agreed amount of proceeds are used to prepay term loans and/or revolver loans at par, and allows the sale of additional debt, including junior or unsecured debt, in an amount not to exceed the accordion feature.

Hexion is a Columbus, Ohio-based thermoset resins company.

Sara Rosenberg contributed to this article.

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